Tuesday, August 7, 2018

India Needs To Check The Use of Cryptocurrencies In Terror Funding

India Needs To Check The Use of Cryptocurrencies In Terror Funding

India needs to invest a lot in the training and capacity building of counter-terrorism and money-laundering experts to build a specialised cadre in tackling the challenge that has come from the virtual currencies

by Abhinav Pandya

Today, world order’s hallmark is its general instability and unpredictability, which in the eyes of the political philosophers, is the essence of the post-modernism. This essence of uncertainty reflects itself in myriad ways and forms that include non-state actors and terrorist organisations challenging sovereignty, cyber revolutions threatening the foundations of human security, democracy and law, and the artificial intelligence shaking the very notion of the prominence of the human race. The phenomenon of cryptocurrencies has brought the much-feared uncertainty, anonymity and unpredictability in the global financial system.

There was a time when one could take cash secretly and perform a transaction without any fear of surveillance or tracking by the regulatory agencies. The digitalisation of the financial system deprived us of that anonymity and privacy. The cryptocurrencies promise to return our privacy and anonymity. However, it comes at a massive cost.

The cryptocurrencies have emerged as the most advanced frontiers of terror financing. In 2016, Ibn Taymiyya media center, an online jihadi unit of Gaza used social media campaigns to garner funds through bitcoins. Earlier, June 2015, a Virginia teen was posting instructions on twitter on how to donate to IS using bitcoins. In June 2017, The Wall Street Journal reported about the Syria-based Indonesian militant using paypal and bitcoins to fund IS, as claimed by the Indonesian security agencies. A jihadist monitoring website said that an organisation viz. . al-Sadaqah (Arabic for voluntary giving) was soliciting funds of the value of $750 in November 2017 for relief work in Syria. Al-Sadaqah campaign was circulating through Al Qaida linked social media channels like Facebook and the Telegram messaging app. In December, the Pro-IS websites like Akhbaar-al-Musalmin ( (Arabic for news of the Muslims), and Isdarat were soliciting funds through bitcoin donations.

The cryptocurrency or ‘virtual currency’ does not have a government backing. It has no legal existence in any financial system. It exists under various names such as bitcoins, Monero, Ripples and Zcash. The money-launderers, cyber-criminals and terrorists find cryptocurrencies highly attractive because they offer anonymity and non-traceability. It provides anonymity in the sense that the user does not have to produce any document to validate his or her identity. Further, in a bitcoin network, the users are identified by an alphanumeric value rather than by their actual name. Moreover, the transactions are instantaneous and irreversible. Any amount of money can be transferred instantaneously from anywhere to anywhere concerning geographical location.

Further, such transactions take place on the dark web. The dark web is an encrypted area of web with access to only specialised browsers like TOR (The Onion Router) and Freenet, and cyber criminals mostly use it, money launderers, terrorists, dissidents and journalists to avoid detection. On the dark web, terrorist or cyber criminals can buy a range of things such as driving license, passport, utility bills, guns, bombs and drugs. The website “silk route” that existed on dark web was a global network of illicit money-launderers, smuggler and all kinds of criminals.

The counter-terrorism community across the world is perplexed as to how to respond to the challenge presented by the bitcoins. Moreover, there are worrying concerns. Over the last eight years, the use of bitcoins has exponentially risen from an average of 100 transactions per day in 2009 to 282,000 transactions per day in 2017. Amongst the millions of global bitcoin transactions, it is challenging to spot the cases of terror-financing. Also, the fact that all this takes place on the dark web makes it a gargantuan challenge.

In India’s case, the state of affairs is rather grim. First, India is a special case. In the Middle East and Africa, the poor internet infrastructure discourages the terrorist groups from using bitcoins. However, India has a much better internet infrastructure regarding equipment, speed and connectivity. Plus, the IT skills are better. The use of bitcoins is on the rise. Zebpay, a bitcoin exchange reported that in the last months of 2017, they were adding 300,000 to 400,000 users on its exchange every month as compared to 150,000 in June and July. Also, a vast flourishing network of grey-market and the underground economy already exists. A few years back, radioactive mineral cobalt-60 ended up in Delhi’s scrap market, from Delhi University and was being sold in Delhi grey market. Imagine, if all this comes on an organised online market on a dark-web. It will be a cake-walk for terrorist organisations to get hold of dirty bombs.

And, as if all this was not enough, the regulatory agencies are poorly skilled, understaffed and archaic. The legal apparatus to control bitcoins and cyber-crimes is not sufficiently developed.

India needs to invest a lot in the training and capacity building of counter-terrorism and money-laundering experts to build a specialized cadre in tackling the challenge that has come from the virtual currencies. Further, India also needs to develop a robust legal framework to address this challenge. Currently, though RBI has virtually banned all the banks from dealing in bitcoins or any other form of virtual currency, it will almost be impossible to prevent people from using crypto-currencies in future. Hence, high-handed measures such as outright banning will not serve the purpose of tracking or stopping the use of bitcoins for criminal and terrorist activity. Besides, cryptocurrencies have a huge potential to make the financial system genuinely global and state-of-the-art. The transactions are not delayed or hampered by sovereignty issues, and there is no need for endless paper-work, documents and complicated procedures. The virtual currencies can be a great asset to the vast population which is under served by the banking system. It can genuinely democratise the banking services and save and a lot of time and money because of the speedy and simple nature of its transactions. Hence, outright banning of bitcoins which many countries are doing in the current scenario is not advisable.

Fortunately, the use of cryptocurrencies by terrorist organisations is still in the stage of infancy. Many handicaps such as the lack of developed internet infrastructure, rapidly changing and unpredictable nature of bitcoins, difficulties of converting them into fiat money and the lack of advanced IT skills still prevent the terrorist from using cryptocurrencies on a large scale. However, in the future, it will not be the case. The stringent oversight of regulatory bodies and the difficulties in using Hawala and formal banking systems may drive the terrorist and criminals majorly towards the world of virtual currencies. Moreover, it presents an alarming situation that needs planning and a great effort to develop a robust strategy to prevent the use of cryptocurrency for criminal and terrorist activities.

Abhinav Pandya is a policy analyst who specialises in counter-terrorism, Indian foreign policy and Af-Pak geopolitics